Proposed Rule2026-03923
Permanent Capital Revisions
Primary source
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Published
February 27, 2026
Issuing agencies
Farm Credit Administration
Abstract
The Farm Credit Administration (FCA or we) requests comments on a proposed rule for Farm Credit System (System) banks and associations that would reduce the burden of calculating permanent capital and minimize potential confusion about its use in evaluating the safety and soundness of System institutions. Specifically, the proposed rule would remove references to permanent capital in shareholder and investor reporting regulations as well as in certain other regulations. It would also simplify the calculation of the permanent capital ratio and make other clarifications, corrections, and updates to capital-related regulations.
Full Text
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<title>Federal Register, Volume 91 Issue 39 (Friday, February 27, 2026)</title>
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[Federal Register Volume 91, Number 39 (Friday, February 27, 2026)]
[Proposed Rules]
[Pages 9760-9770]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-03923]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 607, 611, 613, 614, 615, 620, 627, 628, and 630
RIN 3052-AD52
Permanent Capital Revisions
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA or we) requests comments
on a proposed rule for Farm Credit System (System) banks and
associations that would reduce the burden of calculating permanent
capital and minimize potential confusion about its use in evaluating
the safety and soundness of System institutions. Specifically, the
proposed rule would remove references to permanent capital in
shareholder and investor reporting regulations as well as in certain
other regulations. It would also simplify the calculation of the
permanent capital ratio and make other clarifications, corrections, and
updates to capital-related regulations.
DATES: You may send us comments on or before April 28, 2026.
ADDRESSES: For accuracy and efficiency, please submit comments by email
or through FCA's website. We do not accept comments submitted by fax,
because faxes are difficult for us to process. Also, please do not
submit comments multiple times; submit your comment only once, using
one of the following methods:
<bullet> Email: Send an email to <a href="/cdn-cgi/l/email-protection#beccdbd993ddd1d3d3fed8dddf90d9d1c8"><span class="__cf_email__" data-cfemail="0f7d6a68226c6062624f696c6e21686079">[email protected]</span></a>.
<bullet> Use the public comment form on our website:
1. Go to <a href="https://www.fca.gov">https://www.fca.gov</a>.
2. Click inside the ``I want to . . .'' field near the top of the
page.
3. Select ``comment on a pending regulation'' from the dropdown
menu.
4. Click ``Go.'' This takes you to the comment form.
<bullet> Send the comment by mail to Autumn R. Agans, Deputy
Director, Office of Regulatory Policy, Farm Credit Administration, 1501
Farm Credit Drive, McLean, VA 22102-5090.
[[Page 9761]]
We post all comments on the FCA website. We will show your comments
as submitted, including any supporting information; however, for
technical reasons, we may omit items such as logos and special
characters. Personal information that you provide, such as phone
numbers and addresses, will be publicly available. However, we will
attempt to remove email addresses to help reduce internet spam.
To read comments on our website, go to <a href="https://www.fca.gov">https://www.fca.gov</a> and
follow these steps:
1. Click inside the ``I want to . . .'' field near the top of the
page.
2. Select ``find comments on a pending regulation'' from the
dropdown menu.
3. Click ``Go.'' This will take you to a list of regulatory
projects.
4. Select the project in which you're interested. If we have
received comments on that project, you will see a list of links to the
individual comments.
You may also review comments at the FCA office in McLean, Virginia.
Please call us at (703) 883-4056 or email us at <a href="/cdn-cgi/l/email-protection#ddafb8baf0beb2b0b09dbbbebcf3bab2ab"><span class="__cf_email__" data-cfemail="c5b7a0a2e8a6aaa8a885a3a6a4eba2aab3">[email protected]</span></a> to
make an appointment.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for the proposed regulation. To schedule an
appointment for this type of accommodation or auxiliary aid, please
contact (703) 883-4056.
FOR FURTHER INFORMATION CONTACT:
Technical information: Vania Suen, Senior Policy Analyst, Finance
and Capital Markets Team, Office of Regulatory Policy, (916) 900-3500,
TTY (703) 883-4056; or
Legal information: Jennifer Cohn, Assistant General Counsel, Office
of General Counsel, (720) 213-0440, TTY (703) 883-4056.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Objectives of the Proposed Rule
II. Overview of the Farm Credit System
III. Statutory and Regulatory Capital Requirements Governing the
System
IV. Description of the Proposed Rule
A. Replacing References to Permanent Capital With References to
Tier 1/Tier 2 Capital
1. Preliminary Exit Fee Estimate and Final Exit Fee
Calculation--Sec. Sec. 611.1250 and 611.1255
2. Lending and Leasing Limit Violations--Sec. 614.4360
3. Retirement of Other Equities--Sec. 615.5270
4. Grounds for Appointing FCSIC as Conservator or Receiver--
Sec. 627.3
B. Simplifying the Calculation of the Permanent Capital Ratio
1. Simplified Calculation of the Permanent Capital Ratio
Denominator--Sec. Sec. 615.5201, 615.5205, 615.5206, 615.5207,
628.10
2. Simplified Equity Investment Capital Treatment Requirements--
Sec. Sec. 615.5207 and 615.5208
3. Elimination of Requirements Pertaining to Loss Sharing
Agreements--Sec. 615.5207
C. Changes to Disclosures and Reporting
1. Definitions Related to Disclosure to Shareholders--Sec.
620.1
2. Contents of the Annual Report to Shareholders--Sec. 620.5
3. Contents of the Annual Report to Investors--Sec. 630.20
D. Other Capital-Related Changes
1. Assessment and Apportionment of Administrative Expenses--
Sec. Sec. 607.2 and 607.3
2. International Lending--Sec. 613.3200
3. Purchase and Sale of Interests in loans--Sec. 614.4325
4. Definitions Related to Capital Adequacy--Sec. 615.5201
5. Contents of the Annual Report to Shareholders--Sec. 620.5
6. Clarifications to Capital Adequacy Regulations--Sec. 628.1
V. Regulatory Matters
I. Objectives of the Proposed Rule
FCA's objectives in proposing this rule are to:
<bullet> Reduce the role of permanent capital as a measure of
capital adequacy by replacing references to ``permanent capital'' or
``capital'' in certain FCA regulations with references to ``total
capital'' as defined in part 628.
<bullet> Respond to previous System comments that calculating the
permanent capital ratio is burdensome by simplifying the calculation as
permitted by statute.
<bullet> Respond to previous System comments that disclosure of
permanent capital may be confusing to third parties by eliminating the
disclosure of permanent capital from shareholder and investor reporting
requirements.
<bullet> Make other clarifications, corrections, and updates to
capital-related regulations.
II. Overview of the Farm Credit System
In 1916, Congress created the System to provide permanent,
affordable, and reliable sources of credit and related services to
American agricultural and aquatic producers.\1\ The System is a
Government-sponsored enterprise (GSE). System institutions are Federal
instrumentalities that operate on a cooperative basis, and FCA is their
regulator. FCA and the System derive their authorities from the Farm
Credit Act of 1971, as amended (1971 Act).\2\
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\1\ This rulemaking does not affect the Federal Agricultural
Mortgage Corporation (Farmer Mac), which is governed by separate
capital regulations at Subpart B of Part 652. The use of the term
``System institution'' in this preamble and proposed rule does not
include Farmer Mac.
\2\ 12 U.S.C. 2001-2279cc. The 1971 Act, as well as the other
FCA/System-related legislation referenced in this preamble, is
available at <a href="http://www.fca.gov">www.fca.gov</a> under ``Laws and regulations'' and
``Statutes.''
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As of January 1, 2025, the System consists of three Farm Credit
Banks, one agricultural credit bank, 54 agricultural credit
associations, one Federal land credit association, several service
corporations, and the Federal Farm Credit Banks Funding Corporation
(Funding Corporation). System banks (which include both the Farm Credit
Banks and the agricultural credit bank) issue System-wide consolidated
debt obligations in the capital markets through the Funding
Corporation,\3\ which enables associations to provide short-,
intermediate-, and long-term credit and related services to eligible
borrowers. Eligible borrowers include farmers, ranchers, producers and
harvesters of aquatic products, their cooperatives, rural utilities,
exporters of agricultural commodities products, rural residents for
housing, and farm-related service businesses.\4\
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\3\ The Funding Corporation was established pursuant to section
4.9 of the 1971 Act and is owned by the System banks. The Funding
Corporation is the fiscal agent and disclosure agent for the System.
The Funding Corporation is responsible for issuing and marketing
debt securities to finance the System's loans, leases, and
operations and for preparing and producing the System's financial
results.
\4\ The agricultural credit bank lends to, and provides other
financial services to, farmer-owned cooperatives, rural utilities
(electric and telephone), and rural water and wastewater disposal
systems. It also finances U.S. agricultural exports and imports and
provides international banking services to cooperatives and other
eligible borrowers. The agricultural credit bank operates a Farm
Credit Bank subsidiary.
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III. Statutory and Regulatory Capital Requirements Governing the System
To be able to survive in times of stress, financial institutions,
including System institutions, must hold an adequate amount of high-
quality capital that is permanent, stable, and immediately available to
absorb losses. In 1985, Congress added a requirement in section 4.3(a)
of the 1971 Act that FCA ``shall cause System institutions to achieve
and maintain adequate capital by establishing minimum levels of capital
for such System institutions and by using such other methods as the
[FCA] deems appropriate.'' \5\
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\5\ Section 4.3(a) of the 1971 Act, 12 U.S.C. 2154, amended by
Farm Credit Amendments Act of 1985, Public Law 99-205, 101(1)(3), 99
Stat. 1678 (1985).
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[[Page 9762]]
In the Agricultural Credit Act of 1987 (1987 Act), which became
effective in 1988, Congress added Section 4.3A to the 1971 Act.\6\
Section 4.3A(a)(1) of the 1971 Act defines permanent capital to include
``at-risk'' stock; current year retained earnings; allocated and
unallocated earnings; surplus; and other types of debt or equity
instruments that the FCA determines are appropriate to be considered
permanent capital. Section 301(a) of the 1987 Act, which was not
codified into the 1971 Act, required FCA to issue regulations that
establish minimum capital adequacy standards for System
institutions.\7\ FCA adopted minimum risk-based permanent capital
regulations in 1988 that require each System institution to maintain a
ratio of at least 7 percent of permanent capital to its risk-adjusted
asset base.\8\ From 1988 to 1997, the permanent capital standard was
the only regulatory capital requirement for banks and associations.
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\6\ Section 4.3A of the 1971 Act, 12 U.S.C. 2154a, amended by
Agricultural Credit Act of 1987, Public Law 100-233, Sec. 301(b),
101 Stat. 1568, 1609 (1988).
\7\ Agricultural Credit Act of 1987, Public Law 100-233, Sec.
301(a), 101 Stat. 1568, 1608 (1988).
\8\ 53 FR 39229 (October 6, 1988).
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In 1992, Congress amended the definition of permanent capital in
section 4.3A(a)(1)(B) of the 1971 Act to permit each bank to agree with
an association or other recipient of the bank's allocated equities on
whether the bank or the association or other recipient would include
the allocated equities in its permanent capital.\9\ In 1994, we adopted
regulations to implement this new provision.\10\
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\9\ Farm Credit Banks and Associations Safety and Soundness Act
of 1992, Public Law 102-552, 101, 106 Stat. 4102, 4103 (1992).
\10\ 59 FR 37400 (July 22, 1994). These regulations refer to the
agreements referenced in the definition of permanent capital as
allotment agreements.
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In 1997, the FCA added capital requirements--core surplus, total
surplus, and a non-risk based net collateral ratio (NCR)--that were
similar but not identical to the Basel I standards developed by the
Basel Committee on Banking Supervision (BCBS or Basel Committee) \11\
and to the requirements imposed by the Federal banking regulatory
agencies (FBRAs) on the institutions that they regulate.\12\ FCA's core
surplus was similar to Basel I's tier 1 capital, and total surplus was
similar to Basel I's total capital. FCA regulations did not include a
measure similar to Basel I's tier 2.
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\11\ The BCBS was established in 1974 and currently has 45
members, consisting of central banks and bank supervisory
authorities from 28 jurisdictions across the globe. The BCBS sets
global banking standards and recommends them for adoption by member
countries and others, although members and jurisdictions may deviate
as needed. Although FCA is not represented on the BCBS, each of the
Federal banking regulatory agencies is a member. Extensive
information about the Basel Committee and its standards can be found
on the website of the Bank for International Settlements, at <a href="https://www.bis.org/bcbs/index.htm">https://www.bis.org/bcbs/index.htm</a>.
\12\ 62 FR 4429 (January 30, 1997). The FBRAs are the Office of
the Comptroller of the Currency (OCC), the Board of Governors of the
Federal Reserve System (FRB), and the Federal Deposit Insurance
Corporation (FDIC).
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The BCBS and the FBRAs have continued to update their standards and
requirements in an effort to strengthen the capital of financial
organizations. Likewise, FCA has continued to revise its requirements
to maintain comparability with the changing BCBS standards and FBRA
requirements as appropriate and to further enhance the capital strength
and quality of the System. Effective January 1, 2017, FCA replaced its
1997 core surplus/total surplus capital requirements with tier 1/tier 2
capital requirements (Capital Rule).\13\ To the extent appropriate for
the System's cooperative structure and status as a GSE, these
requirements are comparable to the standardized approach rules of the
FBRAs (U.S. Rule).\14\ Consistent with the U.S. Rule, FCA's rule
incorporated key aspects of the Basel III tier 1/tier 2 framework.
Since adopting the 2017 Capital Rule, FCA has used tier 1/tier 2
capital measures instead of permanent capital to evaluate whether an
institution has an adequate amount of total capital, including
sufficient high-quality capital, to operate safely and soundly.\15\
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\13\ 81 FR 49720 (July 28, 2016). As stated in the Objectives,
this rule would replace regulatory references to permanent capital
with references to total capital, one of the tier 1/tier 2 capital
measures. Section 628.2 of our existing rules defines total capital
as the sum of tier 1 capital and tier 2 capital; those terms are
also defined in Sec. 628.2.
\14\ 78 FR 62018 (October 11, 2013) (final rule of the OCC and
the FRB); 79 FR 20754 (April 14, 2014) (final rule of the FDIC).
\15\ See 86 FR 54347, 54351 (October 1, 2021).
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Shortly before FCA's tier 1/tier 2 capital final rule became
effective in 2017, the FCA Board adopted FCA Bookletter-068 (BL-068) to
provide guidance to ensure System institutions had the necessary
information to correctly implement the requirements of the rule.\16\
BL-068 included clarifications and technical fixes on 18 separate
items. Effective January 1, 2022, the FCA adopted a final rule that
codified and clarified many of the items from BL-068 to address
concerns identified through FCA's monitoring and examination of the
rule.\17\ Also in January 2022, the FCA Board adopted revisions to BL-
068 to remove 11 items that were no longer applicable or were
superseded by the 2022 rule. Revised BL-068 retained the remaining
seven items.\18\
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\16\ Bookletter-068 (BL-068)--Tier 1/Tier 2 Capital Framework
Guidance, first published on December 28, 2016, and revised on
January 13, 2022. BL-068 can be found at <a href="http://www.fca.gov">www.fca.gov</a>, under ``Laws &
Regulations'' and ``Bookletters.''
\17\ 86 FR 54347 (October 1, 2021).
\18\ The first item in Revised BL-068 provides guidance on
calculating the permanent capital ratio under the existing
regulations. This rule would revise that calculation, so the
guidance would no longer be correct. Therefore, if this proposed
rule is finalized, the FCA plans to again revise BL-068 to remove
the guidance in the first item.
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IV. Description of the Proposed Rule
Since 2017, FCA has relied on the tier 1/tier 2 capital framework
to assess the capital adequacy of System institutions. Although
institutions are required by statute to satisfy the minimum permanent
capital adequacy standard, FCA no longer relies on the permanent
capital standard as a measure of the quality and quantity of the
System's capital. Accordingly, since the adoption of the tier 1/tier 2
capital framework, FCA has considered how we could reduce the burden of
calculating the permanent capital ratio and minimize any public
confusion about its use in evaluating the safety and soundness of
System institutions.
In the 2020 preamble to the proposed capital rule updates, we
sought comment on the System's perspectives on permanent capital by
asking the following questions:
<bullet> What, if any, changes to the permanent capital regulations
should be made to increase their clarity and understanding;
<bullet> Whether calculating permanent capital is burdensome for
System institutions, and are there any changes FCA could make to the
calculation that would reduce the burden; and
<bullet> Whether FCA should more closely align the permanent
capital calculation with the total capital calculations, considering
the 1971 Act's permanent capital requirements.\19\
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\19\ 85 FR 55786, 55795-55796 (September 10, 2020) (see
questions 8-10).
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In a comment letter submitted by the Farm Credit Council on behalf
of its member System institutions (``System Comment Letter'' or
``Letter''),\20\ the System supported efforts to minimize the use of
the term ``permanent capital,'' the associated calculations, and
reporting of it. The Letter stated that its use can often be confusing,
detracts from Basel-comparability, and is
[[Page 9763]]
burdensome. The Letter supported efforts to align the calculations for
permanent capital with those of total capital (under the tier 1/tier 2
capital framework) to the extent possible and eliminate the permanent
capital reporting requirements from published financial reports.
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\20\ Letter dated November 6, 2020, from Charles Dana, General
Counsel, Farm Credit Council to David P. Grahn, Director, Office of
Regulatory Policy. The Farm Credit Council is a trade association
representing the interests of System banks and associations.
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FCA now proposes regulatory changes that address the comments
raised in the System Comment Letter, FCA's concerns about the
calculation burden, and the public perception of FCA's use of permanent
capital to evaluate the safety and soundness of System institutions.
FCA proposes three types of revisions to address these concerns.
First, we would revise regulations referring to permanent capital,
outside of our permanent capital requirements in part 615, subpart H
and part 628, to instead refer to tier 1/tier 2 capital measures under
part 628. Second, to reduce the burden of calculating the permanent
capital ratio, we would revise regulations in part 615, subpart H and
part 628 to provide that the permanent capital ratio denominator is the
same as the denominator of the total capital ratio in part 628. Third,
we would revise the regulations to eliminate the requirement for System
institutions to disclose their permanent capital ratio in reports to
shareholders and investors.
In addition to addressing the concerns identified above, FCA also
proposes to revise other regulations to clarify requirements, correct
errors, and remove obsolete definitions and requirements related to
capital.
A. Replacing References to Permanent Capital With References to Tier 1/
Tier 2 Capital
FCA proposes to remove references to permanent capital in parts
611, 614, 615 (other than subpart H) and 627. Although these
regulations are not part of our permanent capital requirements in part
615, subpart H and part 628, they refer to permanent capital. We
propose to replace the references to permanent capital with references
to tier 1/tier 2 capital measures under part 628 as appropriate. We are
not removing references to permanent capital in regulations that
implement requirements that are imposed by the 1971 Act or other laws.
1. Preliminary Exit Fee Estimate and Final Exit Fee Calculation--
Sec. Sec. 611.1250 and 611.1255
FCA proposes to amend Sec. 611.1250 and Sec. 611.1255. Section
611.1250 governs the preliminary exit fee estimate for terminating
System banks and associations. Section 611.1255 governs the final exit
fee calculation for those terminating institutions. Specifically, FCA
proposes to remove from Sec. 611.1250(a)(5) and (b)(5)(v), and from
Sec. 611.1255(a)(4)(iv) and (b)(5)(v), references to capital
requirements under subpart H of part 615, which are references to
permanent capital, and to replace them with references to capital under
part 628. In addition, FCA proposes to remove from those same
provisions references to collateral requirements under subpart K of
part 615. Those references are obsolete because subpart K was rescinded
when the tier 1/tier 2 rules became effective in 2017.\21\
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\21\ See 81 FR 49720 (July 28, 2016).
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2. Lending and Leasing Limit Violations--Sec. 614.4360
FCA proposes to remove the reference to permanent capital in Sec.
614.4360(b)(1), governing lending and leasing limit violations, and to
replace it with a reference to total capital. This change to the
lending and leasing limit violation regulation would be consistent with
2021 changes to FCA's lending and leasing limit base computation in
Sec. 614.4351.\22\ Section 614.4360(a) states that each outstanding
loan of a System institution must comply, at all times, with applicable
lending limits, and loans that do not comply must be excluded from the
institution's collateral under Sec. 615.5090. However, under certain
conditions set forth in Sec. 614.4360(b), an institution may continue
to hold a noncompliant loan in its collateral. One of these conditions,
as described in Sec. 614.4360(b)(1), is when a loan exceeds the
lending and leasing limit because of a decline in permanent capital
after the loan was made. FCA proposes to replace the reference to
permanent capital in this regulation with a reference to total capital
under part 628.
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\22\ See 86 FR 54347, 54351 (October 1, 2021).
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3. Retirement of Other Equities--Sec. 615.5270
FCA proposes to remove the reference to permanent capital in Sec.
615.5270(c)(3). Specifically, FCA proposes to remove the language
providing that a bank, association, or service corporation board of
directors may delegate authority to retire at-risk stock to institution
management if, in pertinent part, the institution's permanent capital
ratio will exceed 9.0 percent after retirement. We would retain the
provision that boards may delegate authority to retire at-risk stock to
institution management if, after the retirement, the institution's
capital conservation buffer would be above 2.5 percent, its leverage
buffer would be above 1.0 percent, and it would continue to comply with
all applicable regulatory capital requirements under part 628. FCA also
proposes to clarify that references to regulatory capital requirements
in Sec. 615.5270(c)(4) and (d)(1) are to the part 628 requirements and
not to permanent capital standards.
4. Grounds for Appointing FCSIC as Conservator or Receiver--Sec. 627.3
FCA proposes to revise Sec. 627.3(b)(3), which establishes that
being in an unsafe or unsound condition to transact business is a
ground to appoint FCSIC as a conservator or receiver of a System
institution. Within this provision, Sec. 627.3(b)(3)(ii) specifies
that an unsafe and unsound condition includes an institution with
permanent capital of less than one-half the minimum required level for
the institution. We propose to replace the permanent capital condition
with a condition that the institution has either a total capital ratio
less than the minimum requirement specified in Sec. 628.10(b)(3) or a
tier 1 leverage ratio less than the minimum specified in Sec.
628.10(b)(4), or both. It is appropriate to define violation of these
minimum capital requirements as an unsafe or unsound condition to
transact business, because an institution that violates these
regulatory minimums has diminished loss absorbing capacity. In
addition, an institution violating minimum capital requirements faces
consequences including limitations on the ability to make capital
distributions and discretionary bonus payments,\23\ restrictions on
issuing debt securities under the System's Market Access Agreement
(MAA),\24\ and the possibility of FCA enforcement action.
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\23\ See FCA regulation Sec. 628.11, which governs capital
conservation buffer restrictions.
\24\ Restrictions on and the prohibition of market access are
respectively addressed in Articles IV and V of the MAA. See 82 FR
5565, 5569-70 (January 18, 2017) (Notice of approval of the Draft
Third Amended and Restated Market Access Agreement).
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B. Simplifying the Calculation of the Permanent Capital Ratio
FCA proposes to reduce the burden of calculating the permanent
capital ratio by simplifying its calculation in three ways. First, we
propose to revise the composition of the permanent capital ratio
denominator in part 615, subpart H, and part 628 to match the
denominator of the total capital ratio in part 628. This change
responds to the System Comment Letter commenting on FCA's proposed
capital rule in 2020, which stated the System supports efforts to align
the calculations of permanent
[[Page 9764]]
capital with those of total capital to the extent possible.
Second, we propose to simplify the regulation governing the capital
treatment of equity investments in System banks by associations and
other recipients of the equity.
Lastly, we propose to delete requirements governing how a System
bank and an association that have entered into a loss sharing agreement
must count assets in the permanent capital ratio denominator.
This rule does not propose to revise the permanent capital
numerator because section 4.3A(a)(1) of the 1971 Act specifies the
numerator's composition. Consequently, FCA is unable to simplify or
relieve any burden related to the calculation of the numerator.
We explain our proposed changes in the following sections.
1. Simplified Calculation of the Permanent Capital Ratio Denominator--
Sec. Sec. 615.5201, 615.5205, 615.5206, 615.5207, and 628.10
FCA proposes to relieve burden in calculating the permanent capital
ratio by making the denominator of this ratio, which is defined in part
615, the same as the denominator of the total capital ratio in part
628. We propose to accomplish this by updating regulatory references in
Sec. Sec. 615.5201, 615.5205, 615.5206, 615.5207, and 628.10.\25\
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\25\ In addition, as mentioned above, if this rule is finalized,
FCA would revise BL-068 to remove the guidance on the existing
calculation requirement, because that guidance would not be correct
under the regulations as revised.
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Removing the Definition of Risk-Adjusted Asset Base (Current Permanent
Capital Ratio Denominator)--[Sec. 615.5201]
We propose to remove the definition of risk-adjusted asset base in
Sec. 615.5201. As discussed below, this term refers to the denominator
of the permanent capital ratio. Section 615.5201 defines ``risk-
adjusted asset base'' as standardized total risk-weighted assets (a
term defined in Sec. 628.2 that is used in the calculation of the
total capital ratio denominator), with certain deductions that are
different than those that are made to the total capital ratio
denominator. For some institutions, these deductions could result in
different denominators.\26\ Removing this definition would eliminate
the different deductions in the permanent capital ratio denominator.
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\26\ In general, the differences stem from (1) the deduction of
the adjusted allowance for credit losses (AACL) in the definition of
risk-adjusted asset base compared to the inclusion of AACL in the
total capital ratio denominator and (2) the different denominator
deductions in Sec. 615.5207(h) (for the permanent capital ratio)
and in Sec. 628.22(g) (for the total capital ratio).
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Updating the Permanent Capital Ratio Denominator--[Sec. Sec. 615.5205,
615.5206(c), and 628.10(c)(5)]
Because we are proposing to delete ``risk-adjusted asset base''
from our definitions, we propose to delete that term where it is used
in Sec. Sec. 615.5205, 615.5206(c), and 628.10(c)(5) to refer to the
permanent capital ratio denominator. Instead, we propose to specify in
those provisions that an institution's permanent capital ratio
denominator is its total capital ratio denominator (assets) as
specified in Sec. 628.10(c)(3).\27\
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\27\ Section 615.5205 would refer to Sec. 615.5206(c), which in
turn would refer to Sec. 628.10(c)(3).
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Existing Sec. 615.5205 sets a minimum permanent capital
requirement of at least 7 percent of an institution's ``risk-adjusted
asset base.'' Section 615.5206(c) identifies the denominator of the
permanent capital ratio as an institution's ``risk-adjusted asset
base.'' In addition, Sec. 628.10(c)(5) provides that an institution's
permanent capital ratio denominator is its total ``risk-adjusted asset
base'' calculated in accordance with part 615. Changing these
provisions to refer to the total capital ratio denominator (assets) as
specified in Sec. 628.10(c)(3),\28\ rather than to the risk-adjusted
asset base, would make the two denominators the same.
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\28\ As noted above, the reference in Sec. 615.5205 would be to
Sec. 615.5206(c), which in turn refers to Sec. 628.10(c)(3).
---------------------------------------------------------------------------
In addition, we propose to replace ``asset base'' in Sec.
615.5206(b) with ``assets,'' to clarify this section would reference
the total capital denominator. Section 615.5206(b) governs the
requirement for institutions to use the average daily balances for the
most recent three months in the calculation of the permanent capital
ratio. This change would align with the changes mentioned in this
section.
Updating Permanent Capital Ratio Denominator Deductions--[Sec.
615.5207 Heading, Introductory Paragraph, (a) and (h)]
FCA proposes to eliminate the deductions that are made to the
permanent capital ratio denominator in Sec. 615.5207. Specifically,
FCA proposes to remove references to assets and risk-weight categories
in the heading, introductory paragraph, and paragraph (a) of Sec.
615.5207. In addition, FCA proposes to delete paragraph (h), which
requires an institution to make certain deductions from its risk-
adjusted asset base. Under our proposal to make the permanent capital
ratio denominator the same as the total capital ratio denominator, the
denominator of the permanent capital ratio would instead be subject to
the deductions specified in Sec. 628.22(g) that are currently made to
the denominator of the total capital ratio.
Analysis of Permanent Capital Ratio Denominator Changes on System
Institutions
We determined the proposed changes to the permanent capital ratio
denominator would not cause any System institution to violate the 7.0
percent permanent capital ratio requirement. To make this
determination, we compared the actual permanent capital ratio of each
institution, as reported in FCA call reports, with what that ratio
would have been if it used the total capital denominator, for the years
ending in 2022-2024. Our analysis showed that using the total capital
ratio denominator in the permanent capital ratio would not lead to
material changes in the permanent capital ratios of most institutions.
In most cases, the variance between the total capital ratio and the
proposed permanent capital ratio is less than 1.0 percent.\29\ In
addition, we determined any differences in ratios would be outweighed
by the decrease in regulatory burden, as requested by the System
letter.
---------------------------------------------------------------------------
\29\ A small number of institutions may have a variance larger
than 1.0 percent. This is mainly due to the different deductions in
the two denominators discussed above. Regardless of the size of the
variance, our analysis showed all institutions would continue to
comply with the 7.0 percent permanent capital ratio requirement.
---------------------------------------------------------------------------
2. Simplified Equity Investment Capital Treatment Requirements--
Sec. Sec. 615.5207 and 615.5208
FCA proposes to simplify and clarify Sec. Sec. 615.5207 and
615.5208, which set forth the capital treatment of equity investments
in System banks by associations and other recipients of the equity.\30\
Most of these revisions are to simplify the organization of the
regulations for ease of understanding
[[Page 9765]]
and are not intended to change requirements.
---------------------------------------------------------------------------
\30\ Section 4.3A(a)(1)(B) of the 1971 Act defines permanent
capital to include earnings allocated by a System bank to an
association or other recipient and retained by the bank, and it
allows the bank to agree with the association or other recipient on
whether the bank or the association or other recipient would include
the allocated equities in its permanent capital. In regulation
Sec. Sec. 615.5207 and 615.5208, FCA refers to these agreements as
allotment agreements. In the preamble to the proposed rule that
resulted in the allotment agreement regulations, FCA explained that
an ``other recipient'' of bank allocated equities could include an
``other financing institution'' or another System bank. See 58 FR
34004, 34007 (June 23, 1993).
---------------------------------------------------------------------------
Replacing ``Stock'' With ``Equity''--[Sec. 615.5207(a)]
FCA proposes to clarify Sec. 615.5207(a) by replacing the word
``stock'' with ``equity.'' This provision addresses the treatment of
reciprocal holdings of stock investments between System institutions.
The term ``equity'' is a broader term that includes both stock and
allocated equities, which better reflects the nature of investments
between System institutions.
Clarifying Paragraph (b) Purchased and Allocated Equities--[Sec.
615.5207(b), (c), (d)]
We propose to combine existing paragraphs (b), (c), and (d) of
Sec. 615.5207 into a revised paragraph (b). This proposed
reorganization is for clarity and ease of use and is not intended to
make any substantive changes.
We propose to add new Sec. 615.5207(b)(1)(A) and (b)(1)(B). Like
existing Sec. 615.5207(b)(1), (c), and (d), the new provisions would
require a System bank to consider all equities purchased by an
association or other recipient as its own permanent capital.
Proposed Sec. 615.5207(b)(2)(A), like existing Sec.
615.5207(b)(2), (c), and (d), would permit a System bank and an
association or other recipient to enter into an agreement to provide
for the allotment of allocated equities.\31\ The agreement would
specify, for permanent capital purposes only, a dollar amount and/or
percentage allotment of the association's or other recipient's
allocated investment between the bank and the association or other
recipient. The agreement would continue to have to satisfy the
conditions in Sec. 615.5208.
---------------------------------------------------------------------------
\31\ This provision is required by Section 4.3A(a)(1)(B) of the
1971 Act.
---------------------------------------------------------------------------
Simplifying Capital Treatment in the Absence of Allotment Agreement--
[Sec. 615.5207(c) and (d)]
Proposed Sec. 615.5207(b)(2)(B), like existing Sec. 615.5207(c)
and (d), would provide that in the absence of an allotment agreement
between a System bank and an association or other recipient, the
allocated equities must be allotted 100 percent to the bank and 0
percent to the association or other recipient. Accordingly, we propose
to delete Sec. 615.5208(b), which sets forth an allotment formula for
equities allocated to associations in the absence of an allotment
agreement. This change would simplify the capital treatment between a
System bank and an association in the absence of an allotment
agreement.
Simplifying Capital Treatment Upon the Expiration of an Allotment
Agreement--[Sec. 615.5208(a)(5)]
In addition, we propose to delete Sec. 615.5208(a)(5), which
governs the capital treatment of equities allocated from a System bank
to an association upon the expiration of an allotment agreement.
Because proposed Sec. 615.5207(b)(2)(B) provides for capital treatment
in the absence of an allotment agreement, this provision is unnecessary
and deleting it would simplify the capital treatment of these allocated
equities.
Finally, because we are proposing to delete several paragraphs of
Sec. 615.5207, we would renumber the remaining paragraphs in the
regulation.
3. Elimination of Requirements Pertaining to Loss Sharing Agreements--
Sec. 615.5207
FCA proposes to delete Sec. 615.5207(i), which governs how a
System bank and an association must count assets in the permanent
capital ratio denominator when they have a written agreement to share
losses on those assets. Part 628 has no similar requirement for the
total capital ratio denominator (which under this proposed rule would
be the permanent capital ratio denominator). If needed, FCA would
determine the counting of assets under its reservation of authority in
Sec. 628.1(d)(6).
C. Changes to Disclosures and Reporting
FCA proposes to remove requirements to report permanent capital in
disclosures to shareholders and investors in parts 620 and 630,
respectively. While the 1971 Act requires institutions to comply with
the permanent capital standard, it does not require the public
disclosure of permanent capital to shareholders and investors. We agree
with the System Comment Letter that the disclosure of permanent capital
to third parties can be confusing. We are concerned that third parties
might rely on an institution's disclosure of permanent capital, even
though FCA does not use permanent capital to assess the quality and
quantity of an institution's capital. Accordingly, we propose to
eliminate the requirement to report permanent capital in shareholder
and investor disclosures.\32\
---------------------------------------------------------------------------
\32\ The System Comment Letter acknowledged that FCA might
continue to require permanent capital reporting in call reports.
Since FCA must continue to assess institutions' compliance with the
permanent capital standard, we plan to continue to require its
reporting in a call report schedule that is not available to the
public.
---------------------------------------------------------------------------
1. Definitions Related to Disclosure to Shareholders--Sec. 620.1
FCA proposes to remove references to permanent capital from
shareholder disclosure definitions in Sec. 620.1. Specifically, FCA
proposes to remove the 620.1(j) definition of ``permanent capital.'' In
addition, FCA proposes to remove the reference to permanent capital
standards in the Sec. 620.1(q) definition of ``significant event.'' We
also propose to clarify that the Sec. 620.1(q) reference to capital
adequacy requirements is referring to part 628.
2. Contents of the Annual Report to Shareholders--Sec. 620.5
Paragraph (d) and (g)--Description of Capital Structure and
Management's Discussion and Analysis of Financial Condition and Results
of Operations [Sec. 620.5(d)(1)(ix), (d)(2), (d)(3), (d)(4),
(g)(4)(vi)]
FCA proposes to clarify that the requirements in Sec. 620.5(d) for
an institution to describe its capital structure in its annual report
to shareholders refer only to capital requirements under part 628 and
not to permanent capital standards. FCA proposes these clarifications
in paragraphs (d)(1)(ix), (d)(2), (d)(3), (d)(4), and (g)(4)(vi), and
proposes other minor changes to paragraphs (d)(1)(ix) and (d)(3) for
clarity.
Paragraph (d)--Description of Capital Structure [New Provision Sec.
620.5(d)(5)]
FCA proposes to add Sec. 620.5(d)(5). This new provision would
require an institution that chooses to report permanent capital in its
shareholder disclosures to include a statement that although FCA has
established a minimum permanent capital ratio pursuant to statutory
requirements, it currently uses the tier 1/tier 2 capital ratios in
part 628 to evaluate the capital adequacy of an institution. As
discussed above, we agree with the System Comment Letter that the
disclosure of permanent capital in financial statements can be
confusing to stockholders and other users, and including this statement
would help lessen this confusion. Institutions that choose not to
report permanent capital in their shareholder disclosures would not be
required to include this statement.
Paragraph (f)--Selected Financial Data [Sec. 620.5(f)(2)(i) and
(f)(3)(i)]
FCA proposes to delete the disclosure requirements in Sec.
620.5(f)(2)(i) (for all banks) and Sec. 620.5(f)(3)(i) (for all
associations). With these requirements deleted, banks and associations
would
[[Page 9766]]
no longer be required to disclose their permanent capital ratios for
the last five fiscal years in their annual reports to shareholders.
Sections 620.5(b)(2) and (b)(3) would continue to require banks and
associations, respectively, to disclose their tier 1/tier 2 capital
ratios.
Paragraph (g)(4)--Capital Resources [Sec. 620.5(g)(4)(ii)]
FCA proposes to delete the requirement in Sec. 620.5(g)(4)(ii)
that the management's discussion and analysis section of an
institution's annual report must discuss changes in permanent capital.
This provision would continue to require institutions to describe
trends or changes to tier 1/tier 2 capital in the annual report.
3. Contents of the Annual Report to Investors--Sec. 630.20
FCA proposes to delete the Sec. 630.20(e)(4) requirement that the
System's annual report to investors must describe minimum permanent
capital standards for banks and associations. We also propose to
clarify that Sec. 630.20(e)(4) and (g)(4)(iii) refer to capital
requirements in part 628 and not to permanent capital standards.
D. Other Capital-Related Changes
FCA proposes to revise other regulations to clarify requirements,
correct errors, and remove obsolete definitions and requirements
related to capital.
1. Assessment and Apportionment of Administrative Expenses--Sec. Sec.
607.2 and 607.3
FCA proposes to make a technical revision in Sec. 607.2(b) to
replace ``average risk-adjusted asset base means'' with ``average
assets mean.'' We propose this change for consistency with proposed
changes in parts 615 and 628. The existing Sec. 607.2(b) defined term
is based on the Sec. 615.5201 defined term ``risk-adjusted asset
base.'' As explained above in Section B.1, Simplified calculation of
the permanent capital ratio denominator, we are proposing to delete
this term from Sec. 615.5201 because it would no longer be used in the
permanent capital ratio denominator calculation. Instead, under our
proposed changes to parts 615 and 628, the calculation of all capital
denominators would be based on assets as specified in Sec.
628.10(c)(3). The new term defined in Sec. 607.2(b) would be
consistent with these changes.
Consequently, we also propose technical revisions to Sec. 607.3(b)
to clarify that the equitable apportionment of FCA's assessment of
System institutions would be based on the total capital ratio
denominator (assets) instead of on the risk-adjusted asset base. These
proposed changes would provide consistency with the proposed permanent
capital denominator simplification discussed above in Section B.1,
Simplified calculation of the permanent capital ratio denominator.
2. International Lending--Sec. 613.3200
FCA proposes to change the reference in Sec. 613.3200(c) from
capital to total capital. Section 613.3200(c) sets forth requirements
for export transactions by banks for cooperatives (BCs) and
agricultural credit banks (ACBs),\33\ including that the total amount
of balances outstanding on certain export financing shall not exceed 50
percent of the bank's capital. This change would clarify that the
balances must not exceed 50 percent of the bank's total capital.
---------------------------------------------------------------------------
\33\ The System currently does not include BCs.
---------------------------------------------------------------------------
3. Purchase and Sale of Interests in Loans--Sec. 614.4325
FCA proposes to replace a typographical error in Sec.
614.4325(b)(3)(ii) referring to ``total its capital'' with a reference
to ``its total capital.'' Section 614.4325(b)(3)(ii) governs a System
institution's authority to purchase interests in loans from the Federal
Deposit Insurance Corporation (FDIC). This correction affirms that an
association must obtain approval from its funding bank if it purchases
loans or pools of loans from the FDIC that exceed 10 percent of its
total capital.
4. Definitions Related to Capital Adequacy--Sec. 615.5201
Deletion of Preferred Stock and Term Preferred Stock Definitions
FCA proposes to delete the definitions of ``preferred stock'' and
``term preferred stock'' from Sec. 615.5201, which provides
definitions for subpart H of part 615 related to permanent capital.
Neither of these terms is used in subpart H. However, preferred stock
and term preferred stock continue to be included in permanent capital
as provided in paragraph (4) of the definition of permanent capital in
Sec. 615.5201.\34\ These instruments also continue to be included in
additional tier 1 capital or tier 2 capital provided they satisfy the
criteria specified in Sec. 628.20(c)(1) or Sec. 628.20(d)(1),
respectively.
---------------------------------------------------------------------------
\34\ Under paragraph (4), permanent capital includes stock
issued by a System institution, subject to four exclusions.
Preferred stock and term preferred stock issued by a System
institution are included in this definition, unless they fit within
one of the exclusions.
---------------------------------------------------------------------------
Align Part 615 Capital Element Addition Process With Part 628 Process
FCA proposes to update paragraph (7) of the permanent capital
definition in Sec. 615.5201 to align the way additional capital
elements may be included in permanent capital with the way they are
included in part 628 capital. Paragraph (7) currently provides that
permanent capital includes any debt or equity instruments or other
accounts FCA has determined are appropriate to be considered permanent
capital. Under the proposed revision to paragraph (7), permanent
capital would include any capital element FCA has found may be included
in CET1 capital, AT1 capital, or tier 2 capital pursuant to FCA's
reservation of authority under Sec. 628.1(d)(2)(ii). Under this
proposed revision, if FCA found, using its reservation of authority,
that an additional capital element may be included in CET1 capital, AT1
capital, or tier 2 capital, that element would also be included in
permanent capital. FCA would no longer directly determine whether an
instrument is appropriate to be included in permanent capital, without
it being included in one of the part 628 capital measures.\35\
---------------------------------------------------------------------------
\35\ This change relates to the inclusion in permanent capital
of additional capital elements only. It does not affect the
instruments that Section 4.3A(a)(1) requires to be included in
permanent capital.
---------------------------------------------------------------------------
Deletion of Nonagreeing Association Definition
FCA proposes to remove the definition of nonagreeing association
from Sec. 615.5201. Nonagreeing association is defined as an
association that does not have an allotment agreement with its
affiliated bank. Due to the changes we propose to make to our allotment
agreement regulations discussed above in Section B.2, entitled
Simplified Requirements Governing the Capital Treatment of Equity
Investments in System Banks by Associations and Other Recipients, this
term would no longer be used in our regulations.
5. Contents of the Annual Report to Shareholders--Sec. 620.5
FCA proposes to remove Sec. 620.5(f)(4), which requires banks and
associations to disclose in their annual reports through fiscal year
end 2021 their historical core surplus, total surplus, and (banks only)
net collateral ratios. This requirement is obsolete.\36\
---------------------------------------------------------------------------
\36\ Minimum core surplus, total surplus, and net collateral
ratio requirements were in effect prior to the 2017 adoption of the
tier 1/tier 2 regulatory capital ratios. See 81 FR 49720, 49722
(July 28, 2016). Historical reporting on those ratios through 2021
was for informational purposes.
---------------------------------------------------------------------------
[[Page 9767]]
6. Clarifications to Capital Adequacy Regulations--Sec. 628.1
FCA proposes to clarify that references to capital requirements in
Sec. 628.1(a) and (c)(1) are to the part 628 requirements and not to
permanent capital standards.
V. Regulatory Matters
A. Determination Under Executive Order 12866 and Expected Determination
Under Executive Order 14192
The Office of Management and Budget's Office of Information and
Regulatory Affairs has determined that this proposed rule is not a
``significant regulatory action'' as defined by Section 3(f) of
Executive Order 12866, made applicable to FCA by Executive Order 14215.
This action, if finalized as proposed, is expected to be an Executive
Order 14192 deregulatory action.
B. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule would
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the System, considered together with its
affiliated associations, has assets and annual income in excess of the
amounts that would qualify them as small entities. Therefore, System
institutions are not ``small entities'' as defined in the Regulatory
Flexibility Act.
C. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 \37\
requires a notice of proposed rulemaking to include the internet
address of a posted summary of the proposed rule, in plain language and
less than 100 words.
---------------------------------------------------------------------------
\37\ 5 U.S.C. 553(b)(4).
---------------------------------------------------------------------------
Public commenters may access the summary for this rulemaking under
RIN 3052-AD52 at: <a href="https://www.fca.gov/laws-and-regulations/regulatory-projects-plan">https://www.fca.gov/laws-and-regulations/regulatory-projects-plan</a>.
Lists of Subjects
12 CFR Part 607
Agriculture, Banks, Banking, Assessment and Apportionment of
Administrative Expenses.
12 CFR Part 611
Agriculture, Banks, Banking, Organization.
12 CFR Part 613
Agriculture, Banks, Banking, Rural areas.
12 CFR Part 614
Agriculture, Banks, Banking, Loans and operations, Rural areas.
12 CFR Part 615
Accounting, Agriculture, Banks, Banking, Government securities,
Investments, Rural areas.
[12 CFR Part 620
Accounting, Agriculture, Banks, Banking, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 627
Accounting, Agriculture, Banks, Banking, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 628
Accounting, Agriculture, Banks, Banking, Government securities,
Investments, Rural areas.
12 CFR Part 630
Accounting, Agriculture, Banks, Banking, Organization and functions
(Government agencies), Reporting and recordkeeping requirements, Rural
areas.
For the reasons stated in the preamble, the Farm Credit
Administration proposes to amend parts 607, 611, 613, 614, 615, 620,
627, 628, and 630 of chapter VI, title 12 of the Code of Federal
Regulations as follows:
PART 607--[AMENDED]
0
1. The authority citation for part 607 continues to read as follows:
Authority: Secs. 5.15, 5.17 of the Farm Credit Act (12 U.S.C.
2250, 2252) and 12 U.S.C. 3025.
Sec. 607.2 [Amended]
0
2. Amend Sec. 607.2 by:
0
a. Removing from paragraph (b) the words ``Average risk-adjusted asset
base means'' and adding in their place the words ``Average assets
mean.''
0
b. Removing from paragraph (b) the words ``risk-adjusted asset base (as
defined in Sec. 615.5201 of this chapter)'' and adding in their place
the word ``assets (as specified in Sec. 628.10(c)(3)).''
0
c. Removing from paragraphs (b)(1) through (b)(4) the words ``risk-
adjusted'' wherever they appear.
Sec. 607.3 [Amended]
0
3. Amend Sec. 607.3 by:
0
a. Removing from paragraphs (b)(1) through (b)(3) the words ``risk-
adjusted assets,'' ``risk-adjusted asset base,'' and ``risk-adjusted
asset bases'' wherever they appear and adding in their place the word
``assets.''
0
b. Removing from paragraph (b)(2) the words ``risk-adjusted asset''
wherever they appear and adding in their place the word ``asset.''
PART 611--[AMENDED]
0
4. The authority citation for part 611 is revised to read as follows:
Authority: Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 1.13, 2.0, 2.1, 2.2,
2.10, 2.11, 2.12, 3.0, 3.1, 3.2, 3.3, 3.7, 3.8, 3.9, 4.3A, 4.12,
4.12A, 4.15, 4.20, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17, 5.25, 7.0-
7.3, 7.6-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2002, 2011,
2012, 2013, 2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121,
2122, 2123, 2124, 2128, 2129, 2130, 2154a, 2183, 2184, 2203, 2208,
2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a-2279a-3, 2279b-
2279f-1, 2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101
Stat. 1568, 1638, as amended by secs. 403 and 404 of Pub. L. 100-
399, 101 Stat. 989, 999 (12 U.S.C. 2071 note and 2202 note).
Sec. 611.1250 [Amended]
0
5. Amend Sec. 611.1250 by:
0
a. Revising paragraph (a)(5) to read as follows:
* * * * *
(5) Subtract from liabilities any liability that we treat as
regulatory capital under the capital requirements in part 628 of this
chapter.
0
b. Revising paragraph (b)(5)(v) to read as follows:
* * * * *
(v) Subtract from liabilities any liability that we treat as
regulatory capital under the capital requirements in part 628 of this
chapter.
Sec. 611.1255 [Amended]
0
6. Amend Sec. 611.1255 by:
0
a. Revising paragraph (a)(4)(iv) to read as follows:
* * * * *
(iv) Subtract from liabilities any liability that we treat as
regulatory capital under the capital requirements in part 628 of this
chapter.
0
b. Revising paragraph (b)(5)(v) to read as follows:
* * * * *
(v) Subtract from liabilities any liability that we treat as
regulatory capital (or that we do not treat as a liability) under the
capital requirements in part 628 of this chapter.
PART 613 [AMENDED]
0
7. The authority citation for part 613 is revised to read as follows:
Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1,
3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17, 5.25, 7.0-7.3,
7.6-7.13,
[[Page 9768]]
8.5(e) of the Farm Credit Act (12 U.S.C. 2002, 2011, 2012, 2013,
2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121, 2122, 2123,
2124, 2128, 2129, 2130, 2154a, 2183, 2184, 2203, 2208, 2211, 2212,
2213, 2214, 2243, 2252, 2261, 2279a-2279a-3, 2279b-2279f-1, 2279aa-
5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638
(12 U.S.C. 2071 note and Sec. 2202 note).
Sec. 613.3200 [Amended]
0
8. Amend Sec. 613.3200 by revising paragraph(c) to add the word
``total'' before ``capital'' in the last sentence.
PART 614 [AMENDED]
0
9. The authority citation for part 614 is revised to read as follows:
Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2,
2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10,
3.20, 3.28, 4.12, 4.12A, 4.13B, 4.14, 4.14A, 4.14D, 4.14E, 4.18,
4.18A, 4.19, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17,
7.0, 7.2, 7.6, 7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12
U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074,
2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131,
2141, 2149, 2183, 2184, 2201, 2202, 2202a, 2202d, 2202e, 2206,
2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252,
2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5);
12 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
Sec. 614.4325 [Amended]
0
10. Amend Sec. 614.4325 by revising paragraph (b)(3)(ii) to read as
follows:
Sec. 614.4325 Purchase and sale of interest in loans
* * * * *
(b) * * *
(3) * * *
(ii)Obtains funding bank approval if a Farm Credit System
association purchases loan or pools of loans that exceed 10 percent of
its total capital.
* * * * *
Sec. 614.436 0 [Amended]
0
11. Amend Sec. 614.4360 by revising paragraph(b)(1) to remove the
words ``permanent capital'' and add in its place the words ``total
capital.''
PART 615 [AMENDED]
0
12. The authority citation for part 615 is revised to read as follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4,
2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9,
5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093,
2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252,
2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-
12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608 (12 U.S.C.
2154 note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15
U.S.C. 78o-7 note).
Sec. 615.5201 [Amended]
0
13. Amend Sec. 615.5201 by:
0
a. Removing the definitions of ``Nonagreeing association,'' ``Preferred
stock,'' ``Risk-adjusted asset base,'' and ``Term preferred stock'';
and
0
b. Revising in paragraph (7), the definition of ``Permanent capital''
to read as follows:
Sec. 615.5201 Definitions.
* * * * *
(7) Any other capital element the FCA has found the System
institution may include in CET1 capital, AT1 capital, or tier 2 capital
pursuant to FCA's reservation of authority under Sec. 628.1(d)(2)(ii).
Sec. 615.5205 [Amended]
0
14. Amend Sec. 615.5205 by revising it to read as follows:
Sec. 615.5205 Minimum permanent capital standards.
Each institution must maintain permanent capital of at least 7
percent of assets, as specified in Sec. 615.5206(c).
Sec. 615.5206 [Amended]
0
15. Amend Sec. 615.5206 by revising paragraphs (b) and (c) to read as
follows:
Sec. 615.5206 Permanent capital ratio computation.
* * * * *
(b) The System institution's permanent capital (numerator) and
assets, as specified in Sec. 615.5206(c), are computed using average
daily balances for the most recent 3 months.
(c) A System institution's permanent capital ratio is the ratio of
the System institution's permanent capital, adjusted in accordance with
Sec. 615.5207 (the numerator), to its assets (denominator of its total
capital ratio in Sec. 628.10(c)(3)).
Sec. 615.5207 [Amended]
0
16. Amend Sec. 615.5207 by revising it to read as follows:
Sec. 615.5207 Adjustments to permanent capital.
A System institution must make the following adjustments to
permanent capital (numerator) before it computes its permanent capital
ratio:
(a) Where two System institutions have equity investments in each
other, such reciprocal holdings must be eliminated to the extent of the
offset. If the investments are equal in amount, each System institution
must deduct from its permanent capital an amount equal to the
investment. If the investments are not equal in amount, each System
institution must deduct from its permanent capital an amount equal to
the smaller investment. The elimination of reciprocal holdings required
by this paragraph must be made prior to making the other adjustments
required by this section.
(b) Where an association or other recipient has an equity
investment in a System bank, the investment is treated, for permanent
capital purposes only, in the following manner:
(1) Purchased equities.
(A) Equities purchased by an association. The association must
deduct the investment from its permanent capital and the bank will
consider the investment as its permanent capital.
(B) Equities purchased by a recipient other than an association.
The bank will consider the investment as its permanent capital.
(2) Allocated equities.
(A) Allotment agreement. The bank and the association or other
recipient of allocated equities may enter into an allotment agreement
that specifies, for permanent capital purposes only, a dollar amount
and/or percentage allotment of the association's or other recipient's
allocated equities in the bank between the bank and the association or
other recipient. Allotment agreements are subject to the conditions
specified in Sec. 615.5208.
(B) Absence of allotment agreement. In the absence of an allotment
agreement that satisfies the conditions specified in Sec. 615.5208,
the allocated equities must be allotted 100 percent to the allocating
bank and 0 percent to the association or other recipient.
(c) Where a System institution has an equity investment in another
System institution to capitalize a loan participation interest, the
investing System institution must deduct from its permanent capital an
amount equal to its investment in the participating System institution.
(d) Each System institution must deduct from permanent capital any
equity investment in a service corporation chartered under section 4.25
of the Act or the Funding Corporation chartered under section 4.9 of
the Act.
(e) Each System institution must deduct from its permanent capital
an amount equal to all goodwill, whenever acquired.
(f) The permanent capital of a System institution must exclude any
accumulated other comprehensive income (loss) as reported under GAAP.
(g) For purposes of calculating capital ratios under this part,
deferred-tax assets are subject to the conditions, limitations, and
restrictions described in Sec. 628.22(a)(3) of this chapter.
[[Page 9769]]
Sec. 615.5208 [Amended]
0
17. Amend Sec. 615.5208 by:
0
a. Revising the introductory text of paragraph (a);
0
b. Removing paragraph (a)(5); and
0
c. Removing and reserving paragraph (b).
The revisions and removals read as follows:
Sec. 615.5208 Allotment of allocated investments.
(a) The following conditions apply to agreements that a System bank
enters into with an association or other recipient pursuant to Sec.
615.5207(b)(2)(A):
* * * * *
(1) * * *
(2) * * *
(3) * * *
(4) * * *
(5)[Removed]
* * * * *
(b) [Removed and Reserved]
* * * * *
Sec. 615.5270 [Amended]
0
18. Amend Sec. 615.5270 by:
0
b. Revising paragraphs (c)(3) and (c)(4); and
0
c. Revising paragraph (d)(1).
The revisions read as follows:
Sec. 615.5270 Retirement of other equities.
* * * * *
(c) * * *
(1) * * *
(2) * * *
(3) After any retirements, the institution's capital conservation
buffer, set forth in Sec. 628.11 of this chapter, will be above 2.5
percent, and its leverage buffer, set forth in Sec. 628.11 of this
chapter, will be above 1.0 percent;
(4) The institution will continue to satisfy all applicable
regulatory capital requirements under part 628 of this chapter after
any retirements; and
* * * * *
(d) * * *
(1) Establish any delegations of authority to retire preferred
stock and the conditions of delegation, which must meet the
requirements of paragraph (c) of this section and include minimum
levels for regulatory capital requirements under part 628 of this
chapter as applicable and commensurate with the volatility of the
preferred stock.
* * * * *
PART 620 [AMENDED]
0
19. The authority citation for part 620 continues to read as follows:
Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec.
424, Pub. L. 100-233, 101 Stat. 1568, 1656 (12 U.S.C. 2252 note);
sec. 514, Pub. L. 102-552, 106 Stat. 4102, 4134.
Sec. 620.1 [Amended]
0
20. Amend Sec. 620.1 by removing and reserving paragraph (j) and
revising paragraph (q) to read as follows:
Sec. 620.1 Definitions.
* * * * *
(j) [Reserved]
* * * * *
(q) Significant event means any event that is likely to have a
material impact on the reporting institution's financial condition,
results of operations, cost of funds, or reliability of sources of
funds. The term ``significant event'' includes, but is not limited to,
actual or probable noncompliance with the regulatory minimum capital
adequacy requirements in part 628 of this chapter, stock impairment,
the imposition of or entering into enforcement actions, execution of
financial assistance agreements with other institutions, collateral
deficiencies that impact a bank's ability to obtain loan funds, or
defaults on debt obligations.
Sec. 620.5 [Amended]
0
21. Amend Sec. 620.5 by:
0
a. Revising paragraph (d)(1)(ix) to read as follows:
* * * * *
(ix) The regulatory restrictions regarding retirement of capital
and distribution of earnings pursuant to part 628 of this chapter, and
any requirements to add capital under a plan approved by the Farm
Credit Administration pursuant to subparts L or M of part 615 of this
chapter.
0
b. Revising paragraph (d)(2) to read as follows:
(2) Describe regulatory minimum capital requirements in part 628 of
this chapter, and the institution's compliance with such requirements.
For banks, also discuss any related associations that are not currently
in compliance with the requirements.
0
c. Revising paragraph (d)(3) to read as follows:
(3) State whether the institution is currently prohibited or
limited from retiring stock or distributing earnings by the regulatory
restrictions described in paragraph (d)(1)(ix) of this section, or
knows of any reason such prohibitions may apply during the fiscal year
subsequent to the fiscal year just ended.
0
d. Revising paragraph (d)(4) to read as follows:
(4) Describe the institution's capital adequacy requirements under
part 628 of this chapter and the minimum stock purchase requirement in
effect.
0
e. Adding paragraph (d)(5) to read as follows:
* * * * *
(5) An institution is not required to disclose its permanent
capital ratio. If it does, it must also provide the following
disclosure: As required by Farm Credit laws, FCA established a minimum
permanent capital ratio for System institutions. However, FCA uses
capital ratios in part 628 of this chapter to evaluate whether an
institution has an adequate amount of total capital, including
sufficient high-quality capital, to operate safely and soundly.
0
f. Removing and reserving paragraph (f)(2)(i);
0
g. Removing and reserving paragraph (f)(3)(i);
0
h. Removing paragraph (f)(4);
0
i. Revising paragraph (g)(2)(iii) to read as follows:
(iii) Discuss the factors underlying the material changes, if any,
in the return on average assets, the return on average protected
borrower capital and at-risk capital, and the total capital ratio as
determined in accordance with part 628 of this chapter. An explanation
of the basis of the calculation of ratios relating to total capital
shall be included.
0
j. Removing the words ``permanent capital,'' from paragraph (g)(4)(ii).
0
k. Revising paragraph (g)(4)(vi) to read as follows:
(vi) Discuss any trends, commitments, contingencies, or events that
are reasonably likely to have a materially adverse effect upon the
institution's ability to meet the capital adequacy requirements under
part 628 of this chapter.
* * * * *
PART 627 [AMENDED]
0
22. The authority citation for part 627 continues to read as follows:
Authority: Secs. 4.2, 5.9, 5.10, 5.17, 5.51, 5.58, 5.61 of the
Farm Credit Act (12 U.S.C. 2183, 2243, 2244, 2252, 2277a, 2277a-7,
2277a-10).
Sec. 627.3 [Amended]
0
23. Amend Sec. 627.3 by revising paragraph (b)(3)(ii) to read as
follows:
Sec. 627.3 Grounds for appointing FCSIC as conservator or receiver.
* * * * *
(b) * * *
(3) * * *
(ii) For all institutions, a total capital ratio or a tier 1
leverage ratio that is less than the minimum capital ratios required by
Sec. 628.10(b) of this chapter; or
* * * * *
[[Page 9770]]
PART 628 [AMENDED]
0
24. The authority citation for part 628 continues to read as follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4,
2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9,
5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act (12
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093,
2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252,
2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, 2279aa-10, 2279aa-
12); sec. 301(a), Pub. L. 100-233, 101 Stat. 1568, 1608, as amended
by sec. 301(a), Pub. L. 103-399, 102 Stat 989, 993 (12 U.S.C. 1254
note); sec. 939A, Pub. L. 111-203, 124 Stat. 1326, 1887 (15 U.S.C.
78o-7 note).
Sec. 628.1 [Amended]
0
25. Amend Sec. 628.1 by removing from paragraphs (a) and (c)(1) the
word ``standards'' and in their place, each time they appear, adding
the word ``requirements.''
Sec. 628.10 [Amended]
0
26. Amend Sec. 628.10 by revising paragraph (c)(5) to read as follows:
(5) Permanent capital ratio. A System institution's permanent
capital ratio is the ratio of the institution's permanent capital to
its total capital denominator (assets), as specified in Sec.
628.10(c)(3), and as reported on the institution's Call Report.
PART 630 [AMENDED]
0
27. The authority citation for part 630 is revised to read as follows:
Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31, 8.32, 8.33, 8.34,
8.35, 8.36, 8.37, 8.41 of Pub. L. 92-181, 85 Stat. 583 (12 U.S.C.
2183, 2243, 2252, 2279aa-11, 2279bb, 2279bb-1, 2279bb-2, 2279bb-3,
2279bb-4, 2279bb-5, 2279bb-6, 2279cc); sec. 514 of Pub. L. 102-552,
106 Stat. 4102; sec. 118 of Pub. L. 104-105, 110 Stat. 168.
Sec. 630.20 [Amended]
0
28. Amend Sec. 630.20 by revising paragraph(e)(4) and (g)(4)(iii) to
read as follows:
Sec. 630.20 Contents of the annual report to investors.
* * * * *
(e) * * *
(4) Describe regulatory minimum capital adequacy requirements in
part 628 of this chapter for banks and associations. State the number
of institutions, if any, categorized by banks and associations, that
are not currently in compliance with such requirements and include a
brief discussion of the reasons for the noncompliance.
* * * * *
(g) * * *
(4) * * *
(iii) Provide a general discussion of any trends, commitments,
contingencies, or events that are reasonably likely to have a material
adverse effect on System institutions' ability to comply with
regulatory capital requirements under part 628 of this chapter.
* * * * *
Ashley Waldron,
Secretary to the Board, Farm Credit Administration.
[FR Doc. 2026-03923 Filed 2-26-26; 8:45 am]
BILLING CODE 6705-01-P
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</html>Indexed from Federal Register on February 27, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.